What Is Life Insurance?
Life insurance is a contract that pledges payment of an amount to the person assured (or his nominee) on the happening of the event insured against.
The contract is valid for payment of the insured amount during:
The date of maturity, or
Specified dates at periodic intervals, or
Unfortunate death, if it occurs earlier.
Among other things, the contract also provides for the payment of premium periodically to the Insurer by the policyholder. Life insurance is universally acknowledged to be an institution, which eliminates ‘risk’, substituting certainty for uncertainty and comes to the timely aid of the family in the unfortunate event of death of breadwinner.
Who can buy a Policy?
Any person who has attained majority and is eligible to enter into a valid contract can insure himself/herself and those in whom he/she has insurable interest.
Policies can also be taken, subject to certain conditions, on the life of one’s spouse or children. While underwriting proposals, certain factors such as the policyholder’s state of health, the proponent’s income and other relevant factors are considered by the Corporation.
What are Medical and Non-Medical Schemes?
Life insurance is normally offered after a medical examination of the life to be assured. However, to facilitate greater spread of insurance and also to avoid inconvenience, LIC has been extending insurance cover without any medical examination, subject to certain conditions.
What are With Profit and Without Profit Plans?
An insurance policy can be ‘with’ or ‘without’ profit. In the former, bonuses disclosed, if any, after periodical valuations are allotted to the policy and are payable along with the contracted amount.
In ‘without’ profit plan the contracted amount is paid without any addition. The premium rate charged for a ‘with’ profit policy is therefore higher than for a ‘without’ profit policy.
What is Reversionary Bonus?
The annual bonus added to insurance or pension plans with profits. Based on the performance of the company, LIC declares bonus for policy holders every year. Once added it cannot be taken away. The policyholder can get this amount after the end of policy term. This is offered purely at the discretion of the Corporation and depends on the profits made that year.
Which policy qualifies for Bonus eligibility?
Bonus is payable on all with profits policies of LIC The amount of bonus for each Rs.1000/- sum assured in respect of Whole Life with Profits policies is 125 percent of corresponding bonus amount for Endowment Assurance with Profits policies . Bonus is payable once a policy has been in force for the full sum assured for a period of 5 years from the date of commencement of the policy. However, in case of a death claim within 5 years, bonus is payable if the policy is in force for the full sum assured.
What do you mean by Guaranteed Additions?
In case of some policies, the Life Insurance Corporation provides the policyholder with the bonus or the profits declared as a certain amount per thousand of sum assured. This assured bonus will be given to the policyholder whatever be the performance of the corporation for the period in question. These are Guaranteed Additions and are paid at the end of the term of the policy or in case of the early death of the policyholder.
What is Final Additional Bonus (FAB)?
In addition to the Guaranteed Additions and Reversionary Bonus, for certain policies the Life Insurance Corporation declares further addition at the end of specified term or on maturity or unfortunate death of policyholder. This is usually an amount declared per thousand of sum assured depending on the Corporation’s performance. This is known as Final Additional Bonus (FAB).
What is Loyalty Addition?
In place of Reversionary Bonus that is added every year to with-profit policies, the Life Insurance Corporation declares single lump sum addition for certain policies at the end of specified term or on maturity or unfortunate death of policyholder according to completed policy term. This is usually an amount declared per thousand of sum assured depending on the Corporation’s performance. This is known as Loyalty Addition.
What is a Rider?
It is an optional feature that can be added on to a policy. Policyholder has to pay an additional premium to avail this benefit. For instance, you may take a life insurance policy and add on Accident Insurance or Additional Term Insurance or Critical Illness Benefit or Premium Waiver Benefit as a rider.
What is Surrender Value?
When a policyholder wishes to encash his policy due to urgent need of cash he returns back the policy to the insurer for which is entitled to an amount. This is called surrender of policy or termination of the policy before the stipulated period. Policies can be surrendered provided it is kept in force for at least 3 years. If the policy has completed three years, the bonus is also added to the surrender value.
When does a policy lapse?
If the policyholder fails to pay his premium within the days of grace provided after the due date, the policy lapses. The grace period in case of yearly, half-yearly and quarterly modes of payment is one month and in case of the monthly mode of payment, the grace period is 15 days.
How do I revive a lapsed policy?
A lapsed policy can be revived during the lifetime of the assured, but within a period of 2 years from the due date of the first unpaid premium and before the date of maturity. Revival of a lapsed policy is considered either on non-medical or medical basis depending upon the age of the life assured at the time of revival and the sum to be revived. The policy can be revived by paying default premiums with late fee without additional documents till six months from the date of first unpaid premium.
Is there any other benefit of buying insurance other than the risk cover?
There are several benefits of buying insurance. Other than the risk cover the most important you receive Income Tax Relief, which means premiums paid by you, reduces your tax liability. Such exemptions are also available for premiums paid on health covers. Besides it helps you build up compulsory savings.
Also through a valid assignment the beneficiaries of the policy are protected from claims of creditors. Life insurance policies can also be a great source of help as a security while availing of loans. One could also surrender his policy in case of emergencies. Also trust is created for wife and children as beneficiaries.
What is the Double Accident Benefit (DAB)?
Upon payment of an additional premium of only Re.0.5/1.0 – per annum against a sum assured of Rs.1000/-, a policyholder could opt for a very attractive Double Accident Benefit.
The benefit provides for the payment of an additional amount equal to the sum assured in case of death of policyholder owing to any accident. The death claim under Double Accident Benefit becomes double of the normal claim.
If owing to an accident, a permanent and total disability occurs to the life assured, all the subsequent premiums are waived off and the policy is still kept in full force. Additionally, LIC will pay the policyholder an amount equal to the original sum assured through monthly instalments spread over 10 years. Upon maturity of the policy, the sum assured and the accumulated bonus amount is payable as well.
To be eligible for this benefit, the policy should be in full force for the full sum assured before the policy anniversary and the life assured must not be over 70 years of age either.
What is Nomination?
Nomination is to done at the time of starting a policy and the nominee can be changed any time during the policy term. The nominee has no right on the policy when the policyholder is alive. In case of death of policyholder during policy term, the nominee becomes the rightful person for the policy to receive the policy returns.
What is Assignment of a policy?
If the policyholder intents that his policy returns should go to a particular person only then he need to assign the policy in that person’s favour. Thereafter the insurer will pay the policy returns only to the assignee who becomes its owner, irrespective of whether he or she is your legal heir. Policyholder losses his rights on the policy after making a valid assignment. The returns of a policy can be protected against the claims of any of the policyholder’s creditors by assignment.
What is a Paid-up policy?
If the policyholder pays premiums on a insurance policy for three full years, the policy does not become wholly void even if no subsequent premiums are paid. Such policies are known as paid-up policies. In such cases, the sum originally assured is reduced to a sum bearing the same ratio to the full sum assured as the number of premiums actually paid to total number of premiums originally stipulated as payable under the policy.
What benefits are not accrued to a Paid-up policy?
A paid-up policy loses all the additional benefits attached to the policy:
Double Accident benefits, Survival benefit instalments in the case of money-back policies and insurance cover. A paid-up policy may be free from payment of further premium but is subject to the payment of interest on any loan and other charges, if any are applicable. The interest on the loan must be paid regularly or LIC will start write off the policy towards the repayment of loan amount and the interest in terms of the conditions governing the grant of the loan.
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